What Is BACS? The Ultimate Guide to BACS Payments

BACS payments are a common way of sending and receiving UK payments.

Updated: June 13, 2024
Matt Crabtree

Written By

Matt Crabtree

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You have probably used the BACS payment service if you have ever made a direct debit payment or received a direct credit payment.

In the United Kingdom, BACS payments are widely used for both sending and receiving money. Along with the quicker payments service and CHAPS payments, it is the primary method of making financial transactions in the United Kingdom.

In this article, you will learn the basics of BACS and BACS payments, such as what they are, how they function, and how long they take to process. This manual includes comprehensive explanations of both topics.

What does “BACS” stand for?

Bankers’ Automated Clearing System. 

In the United Kingdom, transferring money using BACS is the norm. This is a transaction conducted by two UK banks directly to one another. BACS payments are one of the most frequent methods to send or receive money in the United Kingdom, and they may be used by anybody. 

You have likely previously paid or received a payment in this manner before, whether for a monthly TV subscription, phone bill, or pension.

What does it do?

A surprising amount, according to the available data. The BACS payment system was first implemented in 1968 and is controlled by a consortium of 16 major banks and building societies. BACS was absorbed by Pay.UK, a major retail payments authority and the home of Faster Payments, in 2018. 

Despite the scheme's age (it's been around for almost 50 years), it's still the most common way for businesses in the UK to make and receive payments. Specifically, BACS Payment Schemes Limited said that it completed its 100 billionth transaction in 2013.

These figures included the 6.3 million transactions completed per hour on a peak day, the £23 billion handled in a single day, and the 97.6 million handled in a single day (however it is unclear whether or not these two records were set on the same day).

Two primary categories of BACS transactions are distinguished by:

1. Direct debits — when you authorise a third party to automatically deduct funds from your bank account. The monthly payment of council tax, internet service, utility, etc.

2. Credit — what we mean by “credit” or “bank transfer” is when someone else puts money into your account. Payouts in the form of salaries, pensions, and reimbursements are only a few possibilities.

History of BACS

Dennis Gladwell founded BACS in 1968 under the name Inter-Bank Computer Bureau.  

The original concept was to take use of emerging technologies to facilitate electronic money transfers between financial institutions.

Later, in the 1980s, the Bankers' Automated Clearing Services added BACSTEL (a telephone service) and changed its name to what it is today. More and more financial institutions began offering the service in the following years as its popularity grew. The whole name was shortened to “BACS Ltd.” quite quickly.

It's hard for us to conceptualise how payment was handled in the past. Checks may take up to a week to clear, but with BACS Ltd., money transfers could be completed in a matter of days. On the other hand, BACS payments took around three days to clear (counting the day the transaction was entered into the system, the day it was processed, and the day it was cleared).

This procedure is still in use, and financial institutions, coops, and businesses all around the world value the service it provides. Of course, thanks to the expansion of the internet, more reliable and time-efficient channels for requesting payments have emerged.

BACS direct debit

Direct Debit and BACS Direct Credit are the two main categories into which BACS may be broken down. 

Firstly, direct debits are payments taken from a client's bank account in accordance with instructions given by the customer to the customer's bank, often at a future date. This is especially helpful for those who have recurring financial obligations, such as a cell phone bill, a magazine subscription, or a charitable contribution.

The main advantage is that after the instruction has been provided by the client to the bank, the person providing the instruction may relax, knowing that the money will be sent on a predetermined timetable. Those who would rather avoid the bother of making frequent payments on their own may appreciate the process's ease.

BACS direct credit

Next, businesses and groups can save time and effort by having payments deposited immediately into a recipient's bank or building society account via BACS Direct Credit. 

Wage payments, employee reimbursements, and tax credits may all be sent using this secure, hassle-free, and efficient method of bank transfer. It has been reported that about 90% of the UK workforce is paid by BACS Direct Credit, a statistic that speaks volumes about the reliability of the system.

Payments made via BACS Direct Credit are guaranteed to be received on time and cannot be lost or stolen. BACS Direct Credit is an easy, inexpensive, and versatile method for companies and organisations to send and receive money.

How do BACS payments get made?

Whether you have a company or personal account, your sort code and account number are associated with the name on your customer card. 

A Direct Debit Mandate, which includes the payee's information, grants permission to initiate a payment from one account to another account via a licensed and approved supplier like us.

The service provider or merchant initiating the debit creates a Direct Debit instruction on the payee's account and processes the Direct Debit mandate. You can find sample Direct Debit Mandates for your reference.

The payment processor will be able to initiate payment requests once the Direct Debit instruction is active. If the payee has been given prior notice of the amount and frequency of the debits, payment processors may use the BACS mechanism to make the deductions.

The guarantee for this protects all Direct Debits against processing failures.

When can you expect access to the funds?

The funds from a BACS transfer won't be instantly accessible.

Instead, it takes three business days for the funds to clear from one account and become available in another.

If a payment is being sent to you by BACS and is expected to arrive that day, you should see the funds in your account first thing in the morning. If your regular payday is the 30th, for instance, your company will likely process this payment on the 27th so that it is available for use on your regular payday.

Faster payments vs. slower payment options like BACS vs. chaps

There are more payment options outside BACS, such as CHAPS and quicker payments. While they may all be classified as “money transfers” their individual processes set them apart.

CHAPS payments

When sending more money than the speedier payments service would allow, users can turn to the Clearing House Automated Payment System (CHAPS). 

High-value transfers, such as sending money to pay a housing deposit, may be done and cleared on the same day using this service. Depending on the bank, the fee might be anything from £25 to £30. The Bank of England estimates that they account for 0.5% of all payments in the UK but 92% of all sterling payments.

Faster Payments

Payments made through BACS Direct Credit or Direct Debit typically settle within three business days. On the first day, payment requests are sent to BACS, on the second day, payments are processed by the banks, and on the third day, funds are transferred from the sender's account and credited to the recipient's account concurrently.

In most cases, the Faster Payments Service can process a payment in about 2 hours. With the Faster Payments Service, monetary transfers may happen nearly instantly. 

It may take up to two hours from the time funds are sent until they may be withdrawn from the receiving bank account. Although £250,000 is the daily transfer cap, several financial institutions impose much lower limitations.

How much does it cost to send money using the BACS system?

BACS is one of the most cost-effective payment methods available. If you want to set up Direct Debit with your bank, though, you'll need to spend money on BACS-approved software.

In the same vein, using a bureau to process Direct Debit payments would likely cost more to cover the price of the necessary processing software. To save money, you may want to consider using a Direct Debit system. What to anticipate from each Direct Debit payment method:

To use a bank

Initial setup expenses amount to £5,000 (not including the $2,495+ price tag of BACS-approved software). There will also be transaction costs ranging from 5p to 50p, plus whatever fees your bank may impose.

Through a bureau recognised by BACS

Monthly fees, filing fees, fresh mandate fees, and penalty fees on top of the initial set-up cost of £400-£800. Transaction expenses of 20p to 50p.

How secure are BACS transactions?

BACS is widely recognised as the safest method for receiving and sending electronic payments globally. 

For instance, in the UK, BACS has been in charge of automated payment clearing and settlement since 1968. More than 130 billion transactions have been processed using it, and new data shows that it has never lost a penny.

BACS employs the SSL-encrypted BACStel-IP network. The system is regularly monitored to verify data and user authorization, and a secure, encrypted password is required for access.

Customers using Direct Debit are protected from fraudulent or unauthorised payments by the Direct Debit Guarantee, and only authorised firms are able to accept Direct Debit payments.

What are the top BACS alternatives? Reviews

Here are other types of bank-to-bank payments.

1. Faster Payments — Best for instant payments

Faster Payments was first implemented in the United Kingdom in 2008. It allows for instantaneous transfers between UK bank accounts.

Electronic Faster Payments may be done in a number of convenient ways, including through the web, the phone, at a branch, or at a self-service kiosk. 

If both the sending and receiving banks participate in the Faster Payments Service, the transfer of funds may be completed in under two business hours. If either financial institution isn't a member of the service, the payment will go via BACS Direct Credit (which takes more time).

Several financial institutions in the United Kingdom work together as Faster Payments Scheme Ltd (FPSL) to run the Faster Payments system.

What is Faster Payments used for?

When using Faster Payments, the goal is to send several payments of little value. This covers money transfers, bills, and costs. 

PayUK, the FPS system's owner, will permit transactions of up to £1m as of February 2022; however, many banks will set a lower limit. The Faster Payment System had its most successful year yet in 2018, handling 3.4 billion transactions worth £2.6 trillion.


✅ Faster Payments' primary value is the time savings it provides. Money is usually sent within 2 hours of the payer processing the payment, if not immediately.

✅ You may pay money to a cellphone number using Faster Payments without providing a bank account number or sort code, boosting security.

✅ More than 52 million people in the UK have access to Faster Payments since it is provided by all the main UK banks and more than 400 additional financial institutions.


❌ Some account types, such savings accounts, are unable to participate in Faster Payments because their banks do not support them.

❌ There is a £1 million cap on payments, while individual banks may impose lower limits.

❌ Faster Payments are processed instantly and hence cannot be cancelled.

2. CHAPS — Best for time-value

The “Clearing House Automated Payment System” is a British corporation that facilitates transfers of large amounts of GBP between banks.

If payment instructions are received by 2 p.m. on a business day, they will be processed the same day via the CHAPS system. It is a very costly means to transfer money, but there is no limit to the amount that may be sent. Usage fees from banks may range from £25 to £30.

What is CHAPS used for?

Common uses for it include the purchase of real estate as well as the settlement of money market and foreign exchange transactions, both of which need immediate payment. The plan includes around 30 financial institutions and 5k other businesses. 

The overall value of CHAPS transactions for the 12 months ending in Dec 2021 was £86.3 trillion, a 7.7% increase from the previous year. It accounts for 0.6% of all UK payments but 92% of their value.


✅ Saving time and money are CHAPS' primary advantages. The amount of money that may be sent using it is unlimited. You may expect same-day processing if your payment instruction is sent before the specified time.

✅ It is generally used by companies and individuals that need to make big, one-time payments quickly. This means that the latest a CHAPS payment may be handled on a given day is 5 p.m.


❌ Time limits apply — it was created for companies and people who need to make big, one-time payments. This means that the latest a CHAPS payment may be handled on a given day is 5 p.m.

❌ One drawback of using it is that once a payment has been initiated, there is limited room for error. If the recipient has already received the money and the payer made a mistake, the bank may not be able to get it back.

❌ Accessing CHAPS might be pricey compared to other payment options. Consumers should expect to spend between £25 and £30 on a monthly basis.

Verdict: Which kind of payment do you recommend? 

BACS Direct Debit might be the ideal choice if you like to choose the timing of your own payments.

That's because it's a pull payment technique, as opposed to systems that always need the payer to initiate payment. When same-day payment is not needed, direct debit is a straightforward and cost-effective method for collecting regular (and one-time) payments.

The most appropriate payment method for you to use may vary depending on the specific payments you want to make. If you need to send a single, large payment (more than £100,000) the very next business day, CHAPS might be your best option.

Faster Payments is an option to explore if you need to make several payments totalling less than £100,000 on the same day. BACS Direct Credit might be an option if you make consistent, periodic payments like salary deposits.


Does BACS equal a bank transfer?

If I want to send money through a BACS transfer, what should I do?

Can I use my bank to send a BACS payment?

How much cash can be sent with BACS?

In the United Kingdom, how much money may you send in one day?

How come people are still using BACS?

Is making payments using BACS secure?

Does using BACS cost anything?

How much does a BACS transfer cost?

Should my company use Direct Debit?

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